Category Archives: All The News That’s Fit To Blog

The big news today is the plaintiffs’ victory in the Vivendi trial. A few key points about the verdict have already emerged:
(1) The jury agreed with the plaintiffs that Vivendi made 57 false or misleading statements concerning its financial status. As to damages, however, it found that the company’s fraud was only responsible for half of the daily stock price inflation that plaintiffs had proposed.
(2) Counsel for the plaintiffs has stated that the overall damages in the case, depending on the number of shareholders who make claims and the amount of pre-judgement interest, could reach $9.3 billion.
(3) Perhaps surprisingly, the jury found that Vivendi’s former CEO and CFO (i.e., the individual defendants) were not liable.
(4) Vivendi already has announced that it plans to appeal the jury’s decision. Moreover, the release sets forth some of the proposed grounds, including “the Court�s decision to include French shareholders in the class, its rulings on jurisdiction and the plaintiffs� erroneous method of proving and calculating damages, as well as the numerous incorrect rulings made during the course of the trial.”
Additional coverage can be found in Reuters, the Associated Press, and the WSJ Law Blog.

A few items of interest from around the web.

(1) CFO.com examines whether the new year will bring regulatory reforms that could reverse the recent drop in securities class action filings.

(2) One entity that may have an effect on the world of securities litigation is the Financial Crisis Inquiry Commission, which started its work this week. The Wall Street Journal has an article (and related blog post) on the close ties between some of the Commission’s members and the securities plaintiffs’ bar.

(3) But the real action relating to the securities plaintiffs’ bar was in Florida, where the State Board of Administration selected five firms for its securities class action panel. It was a hard fought contest, with the St. Petersburg Times reporting that “[i]n the previous 14 months, lawyers and others tied to 51 firms interested in representing the SBA have spent at least $850,000 on Florida politics.” Moreover, the American Lawyer has obtained a number of the firms’ responses to the SBA’s detailed request for proposals. The responses include, among other things, information on billing, fees, settlements, portfolio monitoring, and disciplinary actions.

There have been only seven securities class actions tried to a verdict where the conduct at issue took place after the passage of the PLSRA in 1995. Are we about to see one more added to the list?

The American Lawyer reports that closing arguments have begun in the Vivendi securities class action trial, which started last October. (For more coverage on the trial, see these Reuters and Bloomberg articles from last year on the testimony of ex-Vivendi CEO Jean-Marie Messier.) The jury is scheduled to get the case later this week.

Quote of note: “The plaintiffs alleged, among other things, that Vivendi failed to disclose a liquidity crisis, but [counsel for the defendants] told the jury there was no such crisis to disclose. He said that his side had ‘proved it in spades,’ citing the testimony of Vivendi witnesses who said the company was able to meet its debt obligations.”

A couple of interesting items from around the web.

Pay To Play – In the context of securities litigation, “pay to play” is when lawyers compete to be selected as class counsel for public entities serving as lead plaintiffs in securities class actions by making political contributions to politicians that exercise control over the entities (typically public pension funds). It is a perennial subject of proposed reform, although it has proven difficult to regulate.

The Wall Street Journal had an editorial (subscrip. req’d) on “pay to play” this past weekend. The paper noted that the practice appears to be widespread and state attorneys general, who receive donations from the same plaintiffs law firms, may be reluctant to investigate. Senator Bob Bennett, however, is one politician who is interested in the topic. According to the New York Daily News, Bennett says that Congress may need to launch an investigation. On the other hand, not everyone is convinced that there is a lot of merit to the allegations of “pay to play.” Securities Litigation Watch has two recent posts discussing the empirical counterarguments (here and here)

Extraterritorial Application – One of the government’s stated reasons for urging the U.S. Supreme Court not to hear the National Australia Bank case was that Congress may soon address the issue of the extraterritorial application of the securities laws. The legislation that the government was referring to – the Investor Protection Act of 2009 – has been voted out of committee. The full House may take up the bill in December. The provisions on extraterritorial application (Section 215) grant jurisdiction in U.S. courts when (a) there is “conduct within the United States that constitutes significant steps in furtherance of the violation” or (b) there is “conduct occurring outside the United States that has a foreseeable substantial effect within the United States.” Thanks to John Letteri for the tip.

The big news this week was the commencement of the Vivendi securities class action trial in the S.D.N.Y. At issue in the case are alleged financial misstatements made by Vivendi from October 2000 to August 2002, when the company engaged in a period of significant growth through acquisitions. The American Litigation Daily has a report on the opening arguments.

The Vivendi case is unusual because it includes “foreign-cubed” claims by non-U.S. investors. The original subject matter jurisdiction decision in the case, which allowed the claims of the non-U.S. investors to move forward, found that there was sufficient U.S. conduct related to the fraud because Vivendi’s CEO and CFO had “moved their operations to New York and spent at least half their time managing the company from the United States during a critical part of the class period.” A long-running issue, however, has been exactly which non-U.S. investors should be included in the class. The court has certified a class that includes investors from France, England, and the Netherlands (but excludes German and Austrian investors).

The battle over whether French investors, who reportedly make up 60% of the certified class, should be included has been especially bitter. Earlier this year, the court declined to reconsider its decision to include French investors, while noting that another S.D.N.Y. court had come to the opposite conclusion in a different case. Meanwhile, foreign institutional investors excluded from the class have brought a series of individual suits against Vivendi in the U.S. courts. Securities Litigation Watch has a list of the institutional investors and the Telegraph has an article on the possibility of follow-on trials.

The trial reportedly will take several months (presuming that no settlement is reached in the interim). Stay tuned.

(1) Business Week (Sept. 17) has a column on an enduring question about securities class actions – do they make any economic or practical sense? The author is skeptical, finding that “directors and officers need to be far more than just titular defendants—they need to have skin in the game.”

(2) The extraterritorial reach of the U.S. securities laws continues to be a subject of practicioner and academic commentary. California Lawyer (Oct. 1) has a column entitled “F-Cubed, or All F-d Up?” about the chances of the Supreme Court taking on the issue of f-cubed cases. Meanwhile, Prof. Hannah Buxbaum has a new article on personal jurisdiction over foreign directors.

(3) The D&O Diary looks at Senator Specter’s aiding and abetting bill, discusses the recent subcommittee hearing, and speculates about the bill’s potential impact if passed. Conclusion: “[I]t would not only greatly expand the potential securities liability exposure for companies’ outside professionals. It would also expand the potential securities liability exposure of all companies that transact business with public companies.”

Is Tuesday looking like it may be a slow day? It is not too late to sign up for the webcast of PLI’s Securities Litigation & Enforcement Institute 2009 (New York edition). All of the details can be found here.

Lyle Roberts of Dewey & LeBoeuf (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, including financial crisis litigation, the latest corporate governance litigation issues, case management and settlement techniques, and SEC and DOJ trends. If you cannot make it tomorrow, there also are options for watching it later on the Web or on DVD.

The big news item from last week was the introduction of congressional legislation that would create a private action for the aiding and abetting of securities violations. The bill (which is being sponsored by Senator Specter) effectively would overturn the Central Bank and Stoneridge decisions. Investors would have an enhanced ability to bring claims against “secondary” actors in the securities markets – e.g., lawyers and investment banks.

The key provision in the bill amends Section 20(e) of the Securities Exchange Act of 1934 to include the following: “For purposes of any private civil action implied under this title, any person that knowingly or recklessly provides substantial assistance to another person in violation of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of this title to the same extent as the person to whom such assistance is provided.”

Senator Specter’s remarks upon introducing the bill can be found here. The public commentary on the bill includes a sharply critical Wall Street Journal editorial and academic assessments from Bainbridge and Smith.

The Securities and Exchange Commission had a ready answer to Senator Bennett’s request that the agency look into pay-to-play allegations related to securities class actions: no thanks. Enforcement Action reports that Chairman Schapiro has sent a responsive letter noting, in effect, that the conduct at issue does not fall “squarely” within the agency’s jurisdiction.